Posted by Bishop Fleming on January 31, 2017
Academy catering is becoming a hot issue, with trusts looking to bring their catering in-house to secure greater control over the range of food offered to students. It also provides an opportunity to generate more income by being at the top of the food chain through the provision of catering to other schools.
Matthew Pinnock explains the key implications.
An increasing number of academies have contacted us about bringing their school food catering provisions in-house, so that meals can be prepared and served by the academy trust’s own staff, from the trust’s own premises, dismissing their external supplier in the process.
A number of reasons have lead the trusts to consider this, such as the withdrawal of their existing external supplier, dissatisfaction with the service, or simply the desire to have greater control over the quality and variety of meals served to students.
In addition, a number of academy trusts are considering extending their catering services to supply other neighbouring schools.
Before deciding to bring catering in-house, or to provide services to other local schools, there are a number of staffing, taxation and commercial issues that should be considered by the trust. These include:
Should the academy trust wish to retain the services of certain key members of staff from their external supplier, they will need to be transferred to the trust’s employment under the TUPE regulations. This will also require a review of the individual’s pension arrangements to ensure they are in line with those of the trust.
A decision may be reached that not all staff will be required, or the existing staff may not want to transfer from the external catering company. The trust will need to consider the time and cost that will needed to recruit suitable staff.
Can the current kitchen facilities cope? Is there sufficient preparation space? An external supplier may have prepared a significant amount of the meals off-site to be warmed up on school premises. When deciding to take catering in-house, the school may need to consider extending or reconfiguring the existing kitchen facilities. Capital grants could be available to assist in funding this.
The trust will need to review the suitability of existing equipment, and whether the existing equipment is owned by the trust or the external company. Where the trust is considering providing catering services to other schools, additional hot cabinets and serving equipment may be required.
Where meals are charged to students, this is ancillary to the main charitable activity of the trust. There will, however, be VAT and corporation tax issues where the trust provides external catering services to other academy trusts.
Most trusts will be entitled to a £50,000 small trades exemption that may cover catering income and other trading activity. However, this exemption is intended to cover all sources of trading income, so if the trust already has other non-charitable income, this threshold could be exceeded. Once income from all trading sources exceeds this limit, corporation tax will become due on any profit created from these activities. The supply of catering to third parties is also treated as a taxable supply for VAT purposes.
Academy trusts considering in-house catering will not only have tax to consider. They must also consider the reputational risk of offering catering to third parties. A trust may wish to set up a trading subsidiary to isolate any risk, but there will be tax issues to take into account in doing so.
Any trust considering a change to their catering provision should carefully consider the reporting and taxation implications of this. Should you have any queries or wish to discuss this further, please contact a member of our academies team or your usual Bishop Fleming advisor.
Here you can download Bishop Flemings document to access the Corporation Tax Self Assessment.
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